The REA welcomes the noticeably more positive tone of the Chancellor towards renewable energy in the Budget today. However, we are disappointed that this was not backed up with any significant additional measures to encourage investment in renewable energy, despite the Budget document making it clear that rising oil prices present a threat to economic recovery [1]. This inflationary threat has already been raised by the CBI in relation to manufacturing costs [2].

The Chancellor is wrong to equate renewable energy with higher costs - DECC's own modelling shows that a high renewables energy future costs no more, and could be cheaper, than business as usual [3]. Domestic renewable energy also means a high proportion of inflation-free energy, a better balance of trade deficit, and jobs.

The Chancellor justified the “major role of gas-?red electricity” by saying “gas is cheap,” whilst promising to keep an eye on the costs of renewable energy to families. However, Ofgem [4] and the Committee on Climate Change [5] show it is gas – not renewables – which are responsible for recent, unprecedented energy bill increases.

The International Energy Agency has warned that a 'golden age of gas' will not avert dangerous climate change, and Mervyn King clearly highlighted fossil fuel price links with inflation last year [6]. REA Chief Executive Gaynor Hartnell comments;

“It is short-termism in the extreme to hand out tax breaks to oil and gas because crude oil prices are soaring. Energy security demands we invest in energy sources that won’t run out.”

The Prime Minister warned on Monday that the UK is 'falling behind our competitors' in investing in modern infrastructure. That is squarely the case on renewable energy, where the UK remains one of the poorest performers in Europe despite boasting the best resources. The EU now employs well over one million people in renewable energy with an estimated €130 billion of sales [7] in 2010.

Gaynor Hartnell said;

"We are concerned that this government is making the re-investment case for old technologies (gas and nuclear [8]), more strongly than it is embracing the future for renewable generation technologies. Renewables are growing at a faster rate than any other energy sector in the world and price reductions in some technology areas are extraordinary. It is encouraging to see some signs that the Chancellor catching up with this agenda, but he has a long way to go. The International Energy Agency has warned that 'the window is closing' and they have urged countries to avoid 'locking-in' to fossil fuel infrastructure."

[1] "Oil prices have, however, recently risen to record levels in sterling terms, reflecting the impact of ongoing tensions in the Middle East. If sustained this could renew upward pressure on inflation and dampen recovery in the UK and globally" (p. 13)
http://cdn.hm-treasury.gov.uk/budget2012_complete.pdf

[2] “Any further rise in oil prices would be a significant concern, given the additional cost burden this would place on UK manufacturers and the knock-on effects it could have on the nascent recovery.” Ian McCafferty, CBI Chief Economic Adviser
http://www.cbi.org.uk/media-centre/press-releases/2012/03/manufacturers-predict-strong-rise-in-production-but-inflationary-pressures-pick-up-%E2%80%93-cbi-survey/

[4] “Higher gas prices have been the main driver of increasing energy bills over the last eight years.”
http://www.ofgem.gov.uk/Media/FactSheets/Documents1/Why%20are%20energy%20prices%20rising_factsheet_108.pdf

[5] “Of this £455 increase … Around £380 was unrelated to low-carbon measures, with £290 due to increases in wholesale costs reflecting increases in the price of gas and supplier costs … “£30 [is due to] decarbonising the energy mix through support for investments in low-carbon power generation including renewables”
http://downloads.theccc.org.uk.s3.amazonaws.com/Household%20Energy%20Bills/CCC_Energy%20Note%20Bill_bookmarked_1.pdf

[6] http://www.bbc.co.uk/news/business-13357282

[7] The State of Renewable Energies in Europe, 11th EurObserv’ER Report, 2011: http://www.eurobserv-er.org/pdf/barobilan11.pdf

[8] The Prime Minister talked on Monday about 'investing in modern gas power' and his conviction that nuclear plant should be replaced between 'now and 2030'. The only renewable technology he mentioned was offshore wind, but there are over 15 other renewable energy technologies represented by the REA. An estimated £211 billion was invested in renewable energy globally in 2010 – an increase of 32% on 2009 [9]. An estimated $250 - $260 billion [10] of renewable energy investments took place in 2011 despite the difficult economic backdrop. Illustrating the dramatic price falls in crystalline solar, total installations rose 69% while revenue rose 29%. Wind attracted the second largest share of global investment at $72 billion.

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